20171011-大华继显-Regional_Morning_Notes_21页_1mb

Regional Morning Notes Summary - 11 October 2017

Core Content

This document provides a comprehensive update on market and sector developments across several Asian countries, focusing on China's aluminium industry, Brilliance Auto, and other regional highlights. It also includes key indices, top picks, corporate events, and financial forecasts.

Main Points

China: Aluminium Industry Supply-Side Reform

• Supply-Side Reform Progress: The supply-side reform in China's aluminium industry is progressing as expected. Illegal capacity elimination has reached 6.98m tonnes by September 15, out of a total of 7.5m tonnes, with 93% of illegal capacities shut down.
• Key Beneficiaries: Chalco is expected to benefit significantly from the reform due to its legal operational capacity and its integrated supply chain covering bauxite, carbon anode, and aluminium.
• Capacity and Production: Chalco's aluminium capacity is projected to increase to 5m tonnes by the end of 2017, with production expected to reach 3.5m tonnes in 2017 and 4.5m tonnes in 2018. Alumina output is expected to reach 13.3m tonnes in 2018.
• Cost Position: Chalco aims to improve its cash cost position by moving up the industry cost curve to the 40th percentile by the end of 2017 and the 30th percentile in the next 2-3 years.
• SOE Reform: A SOE reform is expected in the aluminium sector, with Chalco halting trading pending a share issuance to acquire assets from a third party.

Brilliance Auto (1114 HK)

• Sales Performance: September 2017 sales increased by 12% year-on-year to 34,495 units, with the new 5-series contributing significantly to the growth, reaching over 11,000 units in September.
• Sales Forecast: Full-year sales for 2017 are expected to reach 410,000 units, with the 5-series projected to grow to 15,000 units per month in 4Q17.
• Profitability: Net profit for 2017 is forecasted at Rmb5.54b, with a 32% year-on-year growth. The company's net margin is expected to rise to 10.5% in 2017.
• Valuation: The target price is HK$28.00, representing a 29% upside from the current share price of HK$21.70.
• Risks: Downside risks include potential losses from the mini-bus business, though Brilliance has the option to sell this segment if needed.

Key Information

Regional Highlights

• Indonesia: Adhi Karya (ADHI IJ) is recommended with a target price of Rp3,200. The NDR (Non-Performing Loan) outlook is a key focus.
• Malaysia: Plantation sector inventory breached 2.0m tonnes in September 2017, mainly due to lower export volumes compared to CPO production.
• Singapore: Memtech International (MTEC SP) is a top pick with a target price of S$1.33.
• Thailand: Charoen Pokphand Foods (CPF TB) is expected to show a quarterly recovery in performance.

Key Indices Performance (as of 10 October 2017)

• DJIA: Previous close 22830.7, 1D +0.3%, 1W +0.8%, 1M +3.5%, YTD +15.5%
• S&P 500: Previous close 2550.6, 1D +0.2%, 1W +0.6%, 1M +2.5%, YTD +13.9%
• FTSE 100: Previous close 7538.3, 1D +0.4%, 1W +0.9%, 1M +1.7%, YTD +5.5%
• AS30: Previous close 5807.1, 1D +0.0%, 1W +0.7%, 1M +0.6%, YTD +1.5%
• CSI 300: Previous close 3889.9, 1D +0.2%, 1W +1.8%, 1M +1.7%, YTD +17.5%
• FSSTI: Previous close 3289.0, 1D -0.1%, 1W +1.3%, 1M +1.9%, YTD +14.2%
• HSCEI: Previous close 11418.8, 1D +0.3%, 1W +4.7%, 1M +1.8%, YTD +21.5%
• HSI: Previous close 28490.8, 1D +0.6%, 1W +3.4%, 1M +1.9%, YTD +29.5%
• JCI: Previous close 5905.8, 1D -0.2%, 1W -0.6%, 1M +0.6%, YTD +11.5%
• KLCI: Previous close 1761.1, 1D -0.2%, 1W +0.1%, 1M -1.2%, YTD +7.3%
• KOSPI: Previous close 2433.8, 1D +1.6%, 1W +2.2%, 1M +3.2%, YTD +20.1%
• Nikkei 225: Previous close 20823.5, 1D +0.6%, 1W +2.1%, 1M +6.5%, YTD +8.9%
• SET: Previous close 1707.0, 1D +0.9%, 1W +1.0%, 1M +4.2%, YTD +10.6%
• TWSE: Previous close 10532.8, 1D +0.1%, 1W +2.0%, 1M -0.7%, YTD +13.8%
• BDI: Previous close 1411, 1D +0.4%, 1W +7.9%, 1M +5.9%, YTD +46.8%
• CPO: Previous close 2740, 1D +0.4%, 1W +1.4%, 1M -0.7%, YTD -14.3%
• Brent Crude: Previous close 57, 1D +1.5%, 1W +1.1%, 1M +5.3%, YTD -0.4%

Top Picks

Key Risks

• Aluminium Prices: Downside risks include slower-than-expected production cuts, weaker demand, higher inventory, and policy changes.
• Chalco: Risks include weaker aluminium prices and higher costs due to poor integration of coal, bauxite, and power assets.
• Brilliance Auto: Downside risk is from larger-than-expected losses in the mini-bus business.

Corporate Events

• Asian Gems Conference 2017: 10–11 October, Singapore
• Post Conference Marketing on Indonesia Strategy: 12 October, Singapore
• Analyst Presentation on Indonesia: 16 October, Brunei
• Consumer Piece and Strategy: 17–18 October, Hong Kong
• Luncheon with O-Net Technologies: 17 October, Hong Kong
• Fintech Seminar 2017: 19 October, Kuala Lumpur
• UOB Kay Hian Annual Regional Strategy Conference: 13 November, Kuala Lumpur

Financial Highlights

Brilliance Auto (1114 HK)

• Sales Volume: Expected to grow from 310,000 units in 2016 to 635,000 units in 2019, with a year-on-year growth of 32%, 26%, and 23% respectively.
• ASP (Average Selling Price): Expected to remain stable around Rmb302.5k/unit in 2018.
• Net Profit: Projected to increase from Rmb3.682b in 2016 to Rmb10.38b in 2019.
• PE Ratio: Projected to decrease from 25.8x in 2016 to 9.1x in 2019.
• P/B Ratio: Projected to decrease from 4.2x in 2016 to 2.2x in 2019.

Conclusion

The document highlights the ongoing supply-side reforms in China's aluminium industry, with Chalco being a major beneficiary. It also notes the positive performance of Brilliance Auto, particularly with the new 5-series, and provides financial forecasts and valuation metrics. Other regional updates include developments in Indonesia, Malaysia, and Singapore, along with key indices and corporate events.